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Abstract

The globalization of trade has numerous environmental implications. Trade results from a geographic separation of consumption and production. This creates a mechanism for consumers to shift environmental pollution to other countries. China is now the world third biggest trader and the second biggest trade partner of EU. China has also overtaken the U.S. as the world biggest CO2 emitter since 2005. As China’s biggest trade partner, EU has a large trade deficit with China, but on the other hand, CO2 emissions embodied in Sino-EU trade are much more unbalanced than the trade imbalance itself. EU avoided a huge amount of CO2 emissions through trading with China. This lowers CO2 emissions in the EU and facilitates EU meeting its CO2 emission reduction targets, but it creates additional environmental burdens for China. In this paper, the dual imbalances between China and the EU, its mechanism, and policy implications will be presented.

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I. Introduction

Thanks to its fast growing economy and successful economic transformation, China is now ranked as the world’s third largest trader. It also has the largest trade surplus globally,particularly to the European Union (EU) and the United States. In 2006, China’s trade surplus against the EU (25) reached an all-time high of € 128.408 billions, almost three times as much as in 2001. China is the second largest trade partner and the biggest source of trade deficit for the EU (see Table 1). The trade deficit has resulted in still ongoing trade disputes between the EU and China. At the mean time as China’s foreign trade expanding massively, China’s energy consumption and Carbon Dioxide (CO2) emissions are also increasing very rapidly.